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China Evergrande recently announced the sale of its entire stake in Shantou Hengmeng Property Development for 137.6 million yuan (USD 19.20 million). Hengda Real Estate Group Yuedong, Evergrande’s unit, holds a 65% stake in Shantou Hengmeng, with the remaining 35% owned by Redleaf Trading, Evergrande's Australian joint venture partner.
From this transaction, Evergrande anticipates a gain of about 304 million yuan, intending to use the proceeds to settle a 376 million yuan debt owed to Shantou Hengyao Property Development. The disposal will help resume work on existing projects, and safeguard the rights of investors, creditors, and home buyers.
This move comes amid challenges for Evergrande, which has defaulted on offshore debt in late 2021, possibly facing a liquidation petition from its primary offshore bondholder group, according to a Reuters report. The liquidation petition was filed in June 2022 by Top Shine, an investor in Evergrande unit Fangchebao. The proceedings had multiple adjournments, with Justice Chan stating that the December hearing would be the last before a decision on liquidation in the absence of a "concrete" restructuring plan.
The world's most indebted developer, with over USD 300 billion in liabilities, had already disrupted the property sector by defaulting on its debt in 2021. A Hong Kong court had ordered the liquidation of China Evergrande Group. Justice Linda Chan made the decision citing over 18 months of inefficient communication or resolutions from Evergrande.
With USD 240 billion in assets, the liquidation ruling poses a challenge for policymakers in China, struggling with a weak economy, a nine-year low in the property market, and a stock market near five-year lows.
While the liquidation process is expected to be complex and may take months or years, its immediate impact on Evergrande's operations, including ongoing projects, is likely minimal. Evergrande had been working on a USD 23 billion debt revamp plan for almost two years, but setbacks occurred when its founder, Hui Ka Yan, faced investigation for suspected crimes.
Before this ruling, at least three other Chinese developers had been ordered by a Hong Kong court to liquidate since the onset of the current debt crisis in mid-2021. Evergrande's situation underscores the challenges in China's property market, impacting the company and sending ripples through the broader economic landscape.
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